Q3 2023 Tempur Sealy International Inc Earnings Call
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Thank you and thank you for standing by welcome to the Tempur Sealy third quarter 2023 earnings Conference call. At this time, all participants are in a listen only mode.
After the Speakers' presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
Then here an automated message advising your hand this race to withdraw your question. Please press star one again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Aubrey Moore, Vice President Investor Relations. Please go ahead.
Thank you operator.
Everyone and thank you for participating in today's call.
Joining me today are Scott Thompson, Chairman, President and CEO, and Bhaskar Rao Executive Vice President and Chief Financial Officer.
This call includes forward looking statements that are subject to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
These forward looking statements involve uncertainties and actual results may differ materially due to a variety of factors that could adversely affect the company's business.
These factors are discussed in the company's SEC filings, including its annual report on Form 10-K, and quarterly reports on Form 10-Q.
Any forward looking statement speaks only as of the date on which it was made the company undertakes no obligations to update any forward looking statements.
Morning. His commentary will include non-GAAP financial information reconciliations of the non-GAAP financial information can be found in the accompanying press release, which is posted on the company's investor website at Investor Dot Tempur, Sealy Dot com and filed with the SEC.
Our comments will supplement the detailed information provided in the press release.
And now with that introduction, it's my pleasure to turn the call over to Scott.
Thanks, Robert Good morning, everyone and thank you for joining us on our 2023 third quarter earnings call.
I'll start by sharing some highlights from our third quarter performance and then Bhaskar will review our financial performance in more detail.
After that I'll provide an update on our proposed acquisition of mattress firm before opening up the call for Q&A.
Today, we are reporting.
Third best third quarter sales and EPS.
Cluster.
For the third quarter of 2023, we reported net sales of approximately $1 3 billion and adjusted EPS of <unk> 77.
Our results are approximately consistent with the third quarter of last year.
A more challenging macro economic operating locally.
U S bedding industry as a whole underperformed our expectations.
Estimated volume down low double digits in the quarter.
We mitigated the impact of the softer than expected U S market.
Solid company performance that exceeded our expectations on both the relative market performance and year over year gross margin expansion.
Internationally, the bedding industry and our operations performed in line with our expectations.
Overall, despite the markets and the disruption of a major cyber security incidents in the third quarter.
Strong relative performance and cash flow generation demonstrate strong strength of our brands.
Operations and pool.
We believe Tempur Sealy is well positioned for continued success.
Turning to highlights for the quarter.
First our industry, leading brands and products continue to resonate with the U S consumer driving our strong performance relative to the broader market.
All of our new Tempur products.
Advertising initiatives are strengthening tempers appeal to the premium well wellness minded consumers.
The incremental cooling comfort innovation about new lineup of Breeze mattresses generated robust retail advocacy.
Favorable mix in the quarter compared to the prior year.
The lumbar keytruda acoustic massage to wake up and wind down and technologies.
In the smart beta lineup continue to strengthen the value proposition of our adjustable offerings.
The improvement in attachment rates year over year.
These innovations drove a 5% increase.
Tempur mattresses and foundation PSP in the third quarter.
Looking ahead to 2024.
We expect to complete the full requests about U S Cooper portfolio by introducing our next generation of adapter products.
We expect strong returns on investment.
For years to come.
Over the quarter, we continued to support our new Tempur products and a long term health of our Tempur brands with continued investments in national and digital Tempur Pedic advertising.
These marketing investments support very solid e-commerce performance and drove an increase U S. Tempur search interest year over year.
Our strategic investments in product distribution and marketing also continued to drive strong performance.
Spam brand awareness of Stearns <unk> Foster in the U S market.
We completed the rollout of our all new students and posture mattress collection earlier this year.
We continue to see these new products connecting with the premium traditional inner spring consumer driving sales growth year over year.
The consumer centric innovation elevated design intent step up opportunities are resonating with premium innerspring customers.
We are thrilled that our high end products are performing well and the a S. P. A stearns <unk> foster crop is up double digits from last year. Additionally, Stearns <unk> Foster search interest and e-commerce traffic were up 60% this year.
Clearly a multiyear strategy, Chris Byrnes, and foster is working well for us and our retailers.
Second highlight our international operation is performing well.
Solid sales growth amid the current macro backdrop.
We successfully launched our new international Tempur lineup in over 90 markets worldwide.
The rollout from here.
All the key markets in Europe and Asia.
The work is on track and will be substantially completed before the end of the year.
The new products are being well received additionally, dreams, our U K retail operation is also performing well in both sales outperforming versus the broader market.
Record customer satisfaction.
This quarter performance demonstrates the strength of our international strategy campaign, highlighting the long term opportunity for the international operations.
Third we achieved significant consolidated gross margin expansion year over year.
A quick question towards normalized margins.
After multiple years of Covid overhang rapid inflation macroeconomic disruptions pressured margins worldwide.
Pleased to report 340 basis point improvement in consolidated adjusted gross margin year over year.
Thanks to the successful management of commodity fluctuations.
<unk> supplier contracts and operational improvements.
It's a significant step towards driving profitability.
Team remains laser focused on achieving.
The first driver of our gross margin improvement is our ability to pass on pricing to offset commodity inflation as.
As you May recall, we experienced approximately 400 basis points of margin compression between 2020 in 2022 as commodity prices increased at a historical pace.
Now that pricing changes have been implemented.
<unk> prices have started to normalize you can see the positive results in our reported financial statements. Additionally.
Additionally, we are optimistic that our scale in the market and our new product innovations will drive further gross margin expansion.
The second driver of gross margin improvement through operational efficiencies and.
In 2022, we invested approximately $80 million above normal operating levels to ensure we met our customers' needs during periods of supply chain disruptions.
All these actions were critical to maintaining.
The number one and customer satisfaction.
This online image Amy power 2023 report.
We are thrilled to achieve this distinction for the third year in a row for online mattress category.
And the fifth consecutive year.
At least one JD Power's awards.
Now I'll turn the call over the past with review our financial statements in more detail.
Thank you Scott and the third quarter of 2023, consolidated sales, where approximately $1.3 billion and.
And adjusted earnings per share with 77.
While these results were slightly below our expectations. We believe we continue to outperform are competitive set in a challenging market.
We have approximately $32 million a pro forma adjustments in the quarter all of which are consistent with the terms of our senior credit facility.
These adjustments are primarily related to cost incurred in connection with the planned acquisition mattress firm and the previously disclosed cyber event.
Turning to North American results.
Net sales declined 3% in the third quarter.
On a reported basis, the wholesale channel declined 4%.
And the direct channel declined 1%.
North American adjusted gross margin improved a very robust 300 basis points to 43.2%.
Driven by favorable commodities and operational efficiencies, partially offset by deleverage.
North American adjusted operating margin improved 52.
223% driven by improvement and gross margins, partially offset by investments and growth initiatives.
Now turning to international.
International net sales increased a very solid 12% on a reported basis and.
And 7% on a constant currency basis.
As compared to the prior year, our international gross margin improved a robust 320 basis points to $56, 6% drill.
Driven by commodities MC.
Mix and favorable leverage.
Or international adjusted operating margin improved 150 basis points to 16.2%.
Driven by improvements in gross margin, partially offset by investments.
Global commodity prices continued brand largely in line with our expectations.
We continue to expect favorable commodity prices for the remainder of the year, though remaining significantly elevated from 2020 level.
In addition to the benefit of favorable commodity markets, we assign multiple agreements with certain global suppliers, who have recognized our scale momentum.
These relationships will benefit our gross margins over the long term.
Now moving onto the balance sheet and cash flow items.
We have paid down approximately $200 million of debt over the first nine months of this year.
At the end of the third quarter consolidated net debt was $2.5 billion in our leverage ratio under a credit facility was 2.9 times.
Within our historical target range of two to three times.
We generated third quarter operating cash flow approximately $230 million.
And the last five years, the company has realized over $2.5 billion in operating cash flow.
Proving the business model and providing financial flexibility.
I'm pleased to highlight that over the last few weeks, we have successfully re.
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With this refinancing we had meaningfully extended our debt maturities.
Improve our financial flexibility and increased our potential total senior credit funding all while maintaining our current cost of funds and what is clearly a tight commercial banking market.
As we previously reported under the terms of our purchase agreement with mattress firm, we have temporarily suspended repurchases under our share repurchase authorization as we work towards the closing of the transaction.
Over this interim period between signing close we expect a significantly deleverage as we plan to use cash to pay down debt.
After the acquisition closes we anticipate our leverage ratio to be between three and three to five times.
Now turning to 2023 guidance.
We now expect adjusted EPS to be in the range of $2 and 30 and $2.50.
We have maintained a 20 cent range, which reflects the global uncertainty.
The midpoint of our revise annual guidance is based on <unk>.
Sales consistent with prior year this.
This includes our updated expectation that the U S industry volumes will be down low double digits year over year versus our prior expectation of high single digits.
And the execution of our key initiatives new product launches in the wrap around impact of pricing.
Sales and marketing investments of $20 million to to support product launches.
And record advertising spend of approximately $480 million as we continue to support our leading brands and new products.
All this result, and adjusted EBITDA for the year of approximately $885 million at the midpoint of the range.
Consistent with prior year.
I should point out the adjusted EPS range will select foreign exchange rates that are that are unfavorable versus our previous expectations.
Our current outlook for 2023, now contemplates an FX headwind, indicating our fourth quarter of 2023, adjusted EPS has been reduced four.
Versus our previous expectations.
Our guidance also considers the following allegations of capital.
A quarterly dividend of 11th Rep.
Representing a 10% increase relative to 2022.
And capex of approximately $200 million, which includes $90 million of growth.
Primarily to fund the completion of our Crawfordsville facility.
Going forward, we would expect our capex to return to a more normalised level of spend.
We think of annualized Capex is approximately $150 million driven by maintenance spend of 110 and gross spend of approximately $40 million.
Lastly, I would like to flag a few modeling items.
For the full year 2023, we expect DNA of approximately $185 million to $190 million.
Interest expense of about $130 million.
On a tax rate of 20, 25%.
In a diluted share counts of 177 5 million shares.
With that I'll turn the call back over to Scott.
Thanks Nice job Sir.
For opening up the call for questions. Let me provide a brief update on our end game acquisition amounts or something.
Consistent with our expectations were currently responding to the Federal Trade Commission robust second request, which we expect to complete in the fourth quarter of 2023.
We continue to expect the transactions close in mid to late 2024.
We continue to work closely with not just firms leadership team.
We receive high level upgrades anonymous topics, including with financial performance.
Lots of Sun.
<unk> third.
School year.
And will report their physical results when the audit is complete.
Likely early December.
Preliminary results are in line with our expectations.
Finally, I'm pleased to share <unk> and nazi's firm continue.
Joint progress planning for post closing, including.
Solidified the supplier relations ahead of the expensive clothes.
Thinking bouncing the acquisition in Maine and proceed with Holstein numerous posts closing supply agreements with existing not just from suppliers and one supply agreement with a company.
Supplying macho spot.
These contracts.
The expectation for monkeys fun to continue as a multi branded retailer of closing.
A few additional discussions regarding supplier relations are ongoing.
In summary of progress towards the transaction closed.
On track and we look forward to joining with the Masters farm team.
And with that I'll open up the call for questions upright.
Thank you.
As a reminder to ask the question you'll need to press star one on your telephone to Australia. A question. Please press star one one again, please wait for your name to be announced we ask that you limit yourself to one question.
Please stand by we compiled the Q&A roster one moment for our first question.
Our first question comes from the line of Susan Uhm Mclaren with Goldman Sachs. Your line is now open.
Thank you good morning, everyone.
But why don't we start by talking a bit about the demand environment I think that obviously things felt a little softer in the quarter. Then maybe some had anticipated appreciating the color you gave in your comments, but can you talk a bit more about how things trying to during the quit or any sort of anything of.
In there and how you are thinking about that business as we progressed me the balance of this year.
Sure. Thanks for your question, Susan I mean first of all.
Let's not overlook that the international team had good solid growth in the quarter and I think your question is really more directed towards North America, and then kind of streamline your question even further.
Mexico operations had a great quarter in Canada with solid so kind of ratchet it down our largest market, which is where your question is really focused as the U S market.
As far as how the quarter progressed, the same trends I think we talked about probably in the second quarter. We saw in the third quarter, which is.
In non holiday periods, the troughs had gotten deeper.
And then during holiday periods, we're seeing growth in the market, but the holiday periods haven't been strong enough to offset the trough. So that would be that we'll call that in quarter kind of trend. That's the same same trend that we would expect in the fourth quarter.
It continues to be what I'd call the normalization.
Of the seasonality business you used to incur before COVID-19.
We may be slightly deeper trough and slightly higher peaks.
During during the holiday period.
Thank you also kind of acid in general just demand I mean, I think you will know.
The industry's been from our unit standpoint has been in decline for nine quarters.
Making it where we currently are city.
Great recession kind of volumes in the industry.
That we're working through an insurer some of that has to do with slowdown in the general economy, and we're talking use here in wallet shift.
There's probably some minor pullback.
Pull forward from Covid, although we've never really thought that that was a big number I think the biggest thing that the industry is working through is really advertising.
And as you know we've got a lot of smart people a lot of analytics that go on and look at advertising both ours and.
The effectiveness of what goes on in the industry and in looking at it as we tried to understand why the industries, having such such a tough slug compared to historical volumes that were offer trend lines.
If you look at it manufacturer advertising over the last three years is down 40% and if you look at the retailer's, they're advertising is down 20%.
That's that's an issue, but I think probably a bigger issue is when you dive into that reduced advertising and you look at the mix.
Of what people are doing both from a manufacturing standpoint and retailers standpoint.
They've moved from top of funnel advertising over the last three years to the bottom of the funnel. The manufacturers had moved about 40% of their advertising from the top of the final to the bottom and retailers are also move probably 40% to 40% plus of their advertising from the top of the final to the bottom of this level. So what's that mean that means.
We're not putting enough customers in the funnel.
Triggering.
Thinking about mattresses, and we're all kind of fighting for the few customers that happened to trip into the final is what's going on in the industry.
Play with the math that means total top subtle advertising for manufacturers is down 64%. When you. When you include the decline in advertising plus the mix change and for retailers. It's down 44 that is an enormous amount of advertising dollars taken off the top of the final.
And I think that's the big problem in traffic I think that's actually the bigger issue than share of wallet and other things that people people like to talk about now.
Down from our standpoint, we continue to support the industry as a manufacturer in our advertising expense, we have not we have not cut so with us not cutting you can see the other manufacturers are clearly not helping pull the final four we have moved some to the bottom of the tunnel and we are looking.
Looking at that and what we're doing to help kind of get the industry back on track is we're working with other retailers and major retailers walking them through some of this analysis talking to him about it and.
And it's resonating with them and some of the large retailers are we looking at their advertising mix in dollar amount.
Thank you one moment for our next question.
And next question comes from the line of Peter Keith, Let's Piper Sandler Your line is now open.
Peter Your line is now open.
Sorry about that good morning, everyone.
So really nice gross margin really nice gross margin expansion I think the surprise to me and I think from others was the growth in SG&A.
And you did reference that you're making some growth investment so could you unpack a little bit what changed with Q3 that anything accelerate and maybe detail with some of these growth investments are <unk>.
Absolutely. So one of the important things is Scott mentioned is is that we want to continue to support our brands and products. So we continue to advertise and what we believe is that advertising is showing itself and that we could do to outperform the market and capture share. So.
So that is going to be advertising, what I would further say is is that we remain very positive or constructive on our own door, specifically, our temper retail stores strategy and as you can imagine those are very unique type of shopping experiences that have unique locations very long tail on those so those are.
We've identified those opportunities. So as you think about the investments in those stores. That's what's that's what's flowing through selling and marketing as well outside of that and as we think about those things is those things are going to continue to pay dividends as you think about growth in the out years, we're going to continue to invest in future growth.
That's consistent with what we said we did not pull back.
What I'd call short term things to worry about quarter.
Earnings when we look at the market share gains were getting and what we're doing as far as strengthening our competitive position. We felt like those investments we should continue to make them in their advertising and there are some new stores. It temporary knows take some startup costs and stuff, but we stayed on track with our growth plan.
Thank you.
Moments our next question.
And next question comes from the line of Bobby Griffin with Raymond James per line is now open.
Good morning, Buddy Thanks for taking my questions you bet.
John Boster are clearly a very dynamic market here and not asking really for 2024 guidance will all make our own prediction, but when you look at this year and you kind of look out played out can you may be highlight a few of the aspects that might not repeat from a cost standpoint in 2024 that we should keep in mind and then on the other side is are things coming in.
2024 that we should also model and that maybe didn't occur this year from a product investment standpoint, or anything about that just to help us.
Think about the flow and flow out of costs and expenses next year.
Sure I'll start and and Bosco, probably enhance it and clean it up I think the one one thing that jumps to mind.
And it's really a highlight for the quarter is the operational efficiencies that we're beginning to flow through the financial statements, but the last few years, we're really a mess and operations because supply chain issues commodity changes.
<unk> conversion.
Staffing issues I mean look the operating team has done a great job in a very tough operating environment well all that is kind of normalized and we're back to focusing like.
We used to do historically on driving efficiencies.
Getting back on our metrics and this is really the first quarter you are beginning to see that in the margins that's an internal issue.
I'm optimistic that.
You're going to continue to see that in 2024 I think you can also see one of the big highlights is the international sales group as we've talked about this cube project, which again took a lot of energy from operations.
And got them not cut off focus from an efficiency standpoint.
Through that project, so I'm expecting some some operating efficiencies internationally plus the product is resonating in the marketplace I.
Think it was like a 12% growth give or take the Oscar for.
For the International group and think about that this is high end product in.
In the international market at a time of geopolitical complications will call it.
So.
We're thrilled this is higher aspie product.
And it's resonating we would expect to get leverage.
In the international operation from sales.
<unk> what are the just off the top of your head.
I think all of those are the right way to think about it a number of growth initiatives growth initiatives to drive the top line and then the operations or from a gross margin standpoint, we should see those tailwinds continued.
Thank you one moment for our next question.
Our next question comes from the lineup Jason harsh with Bank of America. Your line is now open.
Hey, good morning, and thanks for taking my question.
In light of your comments to a previous question I'm curious if you can say what you think is needed for the industry to get back to more normalized unit level do you think we need to see a pickup in industry advertising do we need to see more housing turnover is it just going to take time, what do you think it is key to get there.
Yeah, I think we all fell in love with low funnel advertising and.
And some others.
Hold back on their advertising hoping to drag.
Draft on other people I think the bedding is an industry that did you have to trigger the customer to think about people don't wake up one day and say, let's go buy a bunch of beds.
In the industry is very successful.
When it when it advertises and so I think it's primarily.
A lack of advertising.
People and probably a mixture a little bit of a mix fine tuning.
I think I would also 0.2, if you look at what Tim proceed lease done.
I mean look into that any secrets, we have gathered a lot of market share.
And you see that in our Stearns and foster product, where we have done.
Higher than historical advertising.
And they're so.
So we've proven that advertising works, yeah, the products great <unk> great.
But you gotta have the advertising in there and so yeah I think advertising is the key you'll hear retailers talk about traffic and that is the issue and everybody needs to get back to.
Working a little bit on the top funnel in getting people in the final rather than waiting at the last minute grab them off their purchase journey at the end things like manufacturers slot bind slops or doing spiffed those kind of dollar investments are all just.
Fighting over the customers in the market place and aren't productive and they really aren't something that tempers sealey's done we've had some other manufacturers try.
Try to work that angle.
Thank you one moment for our next question.
Our next question comes from the line of satisfaction with Wedbush Securities Stone line is now open.
Thanks, a lot and good morning, I was hoping for a little bit more color around the supply agreements here, you're talking with that so the new supply agreements that you're signing.
With existing suppliers or anyone new supply you mentioned are these beneficial to you because of the proposed acquisition masters firm or independent and how should we think about the benefits to gross margin information into 2024.
Okay. Let me, let me talk about those I mean, we're.
We're buying mattress firm it has other suppliers.
And we decided it would be advantageous to go ahead and sign some post merger supply agreements with our suppliers why did we think that one as some of these suppliers mattress firm is their largest customers.
It creates an uncertainty in their minds some of them need to refinance their debt.
Some of them just need to figure out their staffing to.
<unk> products have long lead times and so in order to have a stable market.
It seemed appropriate to go ahead and both parties come together and make sure we have a meeting of the minds and contractually.
Arrange what that looks like.
So it's good for them.
It's also good for us because it gives us certainty.
We're not gonna have any supply disruptions and with the contracts we signed.
We've got enough.
Non temper seeley suppliers to have a multi branded mattress firm floor.
And service our customers. It also gives the mattress firm folks the rsa's.
Comfort that they are going to have some of the non temper seeley products that they love to market it.
It also is friendly from an FTC standpoint to the extent it the FTC has concerns.
Suppliers are gonna get shut out.
It is not consistent with our business plan overseas at dreams or anywhere else is not our business plan here, but we've got contracts will also we've put in place to demonstrate that our business plan is being executed.
Thank you one moment for our next question.
Our next question comes from the line of Bad Thomas with Keybanc Capital markets. Your line is now open.
Hey, Thanks, good morning.
Scott was hoping I could get a little bit of your kind of first blush in how you're thinking about the industry as you look out to 2024, obviously some of the.
Leading indicators of the health and the consumer like rent.
Ramping student loan payments could be a headwind obviously interest rates are going higher housing has been slower. So curious you are early take on 2024 and if the industry stays challenge can you help us think about how temper might change strategy if at all in that kind of environment.
And we certainly see and agree that there are some headwinds in 2024 and don't want to.
Under estimate those or or let you think that we've got our head in the sand. Those are those are all good points of why the macro should be some headwinds in there, but if you look at the industry. We're already so far on the bottom from historical standpoint.
That I think that we probably are in good shape I think some of this is self inflicted.
From from our execution from an industry standpoint on advertising. So I've used the term bouncing around the bottom <unk>.
Probably the industry took a little bit of a step down probably bounced a little further down on the bottom, but I think you either get in 2024 bouncing around the bottom or you get this this slow recovery that we've been looking for in.
In the industry, what's that mean for temper seeley.
I see nothing going on in the marketplace that would make me think that we would not continue to take market share and so without I don't know what 2000 2004 looks like yet we haven't finished our budgeting, but I think even if it's we'll call. It a softer overall market I think more market share gains will help offset.
Issues, there and then as I mentioned earlier on the call. We've got some internal issues that were in control from a cost standpoint.
That I think give us some optimism.
Two will call. It EPS when you get down their top line is going to be a little more volatile to look at but.
Think we feel we feel relatively comfortable going into 2024 with more details coming when it's appropriate.
Thank you one moment for our next question place.
Our next question comes from the line of vessel Nationalised with UBS. Your line is now open.
Good morning, and thanks, a lot for taking my question Scott of a.
Question that we keep getting from investors, who are taking a fresh look at the <unk> is.
Is that who is <unk> scanning all the share from.
Y as of gaining share so rarely a two part question can you provide some color on the hull and then on the lie How's the product strategy Ftp's different and then related to that Scott.
It was the incremental opportunity to continue to gain share, giving your old vehicle Busta share position in the U S. And then what is the risk that so much of a competitor to <unk> catch up the ones who have been disrupted. Thank you sure sure. Good detailed question first of all I don't want to get the international market. So first of all just this intermarriage internationally.
Taking a large amount of share obviously with what we reported this quarter.
Lots of lots of competition out there. So we're not going to talk about it because it takes all day to go through each country. So I think your question really is more pointed towards the U S. Okay. So I'm going to focus on the U S, but let's not forget internationally, we're taking a good bit of share all around the world. So when you go to the U S. A.
Pause here a second by think this is I think we're taking share from everybody.
I think there might be a smaller players somewhere in the group.
But I think we think the industry was down low double digits, I think thats not far off what our friends over at Leggett think I think as others report their numbers, we can kind of solidify in perfect that number.
And so if you could call the industry would just call it down 10% for talking terms and.
And in the U S. Bosker, we were down like one or two.
Okay great.
Something like that so if you play with the numbers that means that other competitors had a really tough.
A tough time.
When I when I sit on sales calls I don't hear of another competitor taking share from us. So I'm going to say, we are taking a little bit of sheer from probably most everybody.
At some point and I've said this in the past.
The share gains prov.
Probably will reduce as a percentage because our bases bigger than their basis smaller.
But by then I would expect that the industry also is probably in recovery.
But now I think they're still further share gains.
We've got some some stuff in the works and I would expect from what I've seen 2024 that we would take here in the U S and certainly takes year.
Internationally, when you're kind of asked about how are we doing it and what's our secret sauce I mean.
Not too, but too big a secret it we put the money in the beds with great product, we don't cut corners, we don't optimize.
To the detriment of our retailers our to our customers and our product we invest in our people and our Salesforce has been very stable and productive in our marketing departments and our staff had been very stable. We invested people good times and bad times, we believe in advertising it drives the industry.
And we've been advertising significantly it will continue.
To to advertise.
We make what I think at times or the.
The long term decision over the short term decision.
In this quarter there were some decisions that we made during the quarter that I think will pay dividends to us in 2024.
And we don't have discussions about optimizing quarters.
We have we have discussions about optimizing our competitive position so hope.
Hopefully that's helpful.
Thank you one moment for our next question. Please.
Our next question comes from the lineup T. Hughes was truly your line is now open.
Like you had a question on international.
Amongst that's 7% organic growth can talk about how dreams versus.
Yeah, we're starting to feel the influence of the new product launches, there's enough out there to be affecting the numbers yeah.
Thank you. Thank you for that direct question, because it's actually a great great story that as you may know the UK market is really tough I mean the.
The UK market from a retail standpoint for durable goods and home is a very tough market may be one of the toughest.
That we're experiencing in around the world and the Dream team has done a fabulous job they actually had growth in sales in the quarter.
Which is what I what I just told you should it should indicate they had significant.
Market share gains.
That continued to be able to hit their <unk>.
Acquisition EBITDA budget.
And the team has done it with with outstanding.
Execution, so on the product standpoint.
There's new products coming to the UK. They actually do not have the new temper project is it really the only major major market that doesn't have it because there are some special.
Fire retardant.
Requirements in the UK. So it takes a little there was last on it so they'll actually start gearing up in the first part of next year for well call the new temper beds.
Got some other.
New product coming.
They make a good bit of their own product their own plant.
But they are still dealing with a tough market, but boy they have really done which from a Harvard business study you would want people to do which is in a tough market really solidify their competitive position and outside of dreams.
The new product is resonating with the consumer and we saw a nice growth outside of dreams, as well and a very tough market.
Thank you one moment for next question. Please.
Our next question comes from the line of lower Shampine with Luke Capital. Your line is now open.
Thanks for taking my question and I appreciate the commentary that mattress firms from met your internal expectations, but not being Privy to those can you just give us a sense of how they're tracking versus the industry, which I think you commented that that temper believes the mattress industry was down low dull.
In the corner.
Let me put some words around it but but I appreciate that I'm also trying to to respect.
My <unk> my future partners, but luckily.
I would say I guess I can say these words.
Matches firm has performed the map the industry has been worse than we expected that's very clear from our previous comment.
Masters from actually has performed better than we would have expected in this particular U S economy, I think that probably helps reconcile you.
To what you are trying to work on but now they've they've done they've done well.
We'll let them report and.
Certainly thrilled to have them join the company.
Thank you one moment for our next question. Please.
Our next question comes from the lineup Carla to shallow with J P. Morgan. Your line is now open.
Hi, Thank you for taking the question.
Commented on commodities and how they are improving our normalizing a bit but there's still some that are well above the pandemic break it down a little bit in terms of what some of the key commodities what you're seeing.
Absolutely. So the way I think about that is just from a framing standpoint is that we indicated of historically that we've been able to cover the cost of.
Of the commodity inflation through taking price however from a mathematical standpoint that created a margin, meaning the math issue approximately 400 basis points. So sitting here today, we think where they're still about half of that to go the way I think about from a commodity overall standpoint is really puts and takes everything is is.
Definitely off its peaks and whether that be chemicals, lumbers steal et cetera. However, if you look at where we started this journey.
There's still a way there's still a way to go however, commodities in an effort in and of itself is not the story is that there is also another component of that story, which as.
We continue to work with our with our suppliers or major suppliers to make sure that they understand the potential from a company standpoint, and the momentum that we have so yes, we've seen some tailwinds from commodities over the last couple of bits. However, what we've also done is that we've entered into very constructive win win contracts in relationships with our exist.
Sting suppliers to to ensure that the gift keeps on giving.
Not only from a commodity standpoint, but as a as a relationship is strategic relationships to see benefits from an EBITDA standpoint.
Thank you one moment for our next question.
Extra comes from the line of William Reader with Bank of America to your line is now open.
Good morning, there's clearly a little bit of concern about lower income and middle income customers that may be experiencing increasing debt levels. I was wondering if you could talk a little bit about how your sales breakdown between different demographics, and if you're seeing some of those trends start to impact your results.
Sure.
Consistent with the last last few quarters.
There is no question that entry level customer.
Is challenged we have the higher end products are doing well and growing call at Stearns, and foster and temper and especially high and temper and where you see real pressure again, we are talking to us.
As in the entry level customer, which would be our entry level Seeley product.
<unk>, new markets doing better, but but we would sure that that the entry level customer.
Is is really not active.
And the current market.
Thank you one moment for our next question.
Our next question comes from the line of Seth fashion with Wedbush Securities. Your line is now open.
Thanks isn't that a follow up you guys to talk about being on track to respond to that.
His quarter is that timing at all longer than previously expected I thought you'd be.
<unk> responded that by now.
I would say like it's a complicated process. Obviously I think we have provided the government with over 1 million documents just to be clear.
We've always said that we would be substantially complete in the fourth quarter were off probably maybe two three weeks probably from the original timeline.
It's a very stark that's fair.
Thank you at this time I'd like to hand, the conference back to Mister Scott Thompson for.
Closing remarks.
Thank you operator.
To our over 12000 employees around the world. Thank you for what you do every day to make the company successful to a retail partners. Thank you for your outstanding representation of our brands to our shareholders and lenders. Thank you for your confidence and leadership and the leadership of the company and its board. This ends today's call operator.
Thank you.
This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.
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